Krugman Wrong to Argue Euro Is a Trap, Baltic Ministers Say

March 28 (Bloomberg) -- The benefits of joining the euro
outweigh any costs for rescuing members in crisis, finance
ministers of the three Baltic nations said, rejecting economist
Paul Krugman’s view that Europe’s common currency is a “trap.”

“Being members of the euro zone is not only a necessity
for us, it’s a privilege,” Lithuanian Finance Minister Rimantas
Sadzius told a news conference in the capital, Vilnius, with his
Latvian and Estonian counterparts. “This organism is alive,
with good prospects that have only improved as it has dealt
with troubles” in countries like Cyprus.

Krugman, a Nobel laureate, criticized Poland’s euro
ambitions in a New York Times article this week, saying joining
the common currency “is at best a gamble, with a potentially
terrible downside.” Latvia, which wants to join the euro region
in 2014, and Lithuania, which seeks membership in 2015, only
stand to gain, Estonian Finance Minister Juergen Ligi said.
Estonia made the switch in 2011.

Austerity plans that Krugman opposed helped the Baltic
nations recover from debt crises that the European Union
has battled since 2008 to become the 27-nation bloc’s fastest
growing region, Latvian Finance Minister Andris Vilks said.

All three should now be in “core Europe, where many
decisions are made,” Vilks said, referring to the 17 nations
that share the euro and have a voice in EU monetary policy.

Switching Costs

Euro-area authorities, which this week approved a 10
billion-euro ($13 billion) rescue package for Cyprus, are now
working on turning the European Central Bank into a supervisor
for banks and standardizing procedures for insuring deposits and
shutting down banks.

The logistical costs of changing to the euro, payments to
the European Stability Mechanism and guarantees of loans for
resolving future crises in euro members are an investment in
future growth, according to Sadzius. Lithuania’s initial
contribution to the ESM would be 800 million euros, he said.

With per-capita income that’s just two-thirds of the
European Union average, Lithuania stands to benefit from faster
convergence with other EU economies no matter how they’re
performing, according to Sadzius.

“Our booms don’t reach the level of their busts,” the
Lithuanian minister said. “Getting the euro, if we can qualify,
would give our economy a nice push.”

Inflation Hurdle

Lithuania’s main hurdle to adopting the euro at the start
of 2015 is slowing inflation to below an EU limit. Latvia meets
economic criteria for euro adoption and is awaiting political
approval to make the switch next January, according to Vilks.

The exchange rates of the Latvian lats and the Lithuanian
litas are both pegged to the euro.

Introducing the euro in more countries will increase those
nations’ visibility and trust among investors, and will reduce
the complexity of the EU economy, Estonia’s Ligi said.

“There are almost only pros, positive things,” Ligi
said. “Negative aspects are almost entirely emotional.”

Poland last month delayed setting a date for euro adoption
until after a general election in 2015, when Prime Minister
Donald Tusk says all requirements to switch currencies will have
been met. Recent opinion polls have shown most Poles are against
the change. Poland scrapped plans to adopt the euro in 2012
after Europe’s sovereign debt crisis erupted more than three
years ago.